V Guard shares fall 6% in a year. Why brokerages have turned bullish on the stock?

Shares of V-Guard Industries have declined about 6% in a year's period, underperforming the benchmark BSE Sensex that is up more than 9% during the said period. However, brokerages are bullish on the stock after its better-than-expected Q1 FY23 results. 

“V-Guard reported better than expected revenue growth of beating estimates for 3rd consecutive quarter. The growth was driven by a strong performance across the product categories. Margin headwinds owing to high commodity cost inflation is now getting eased as commodity prices have corrected from its recent peak,” said Yes Securities.

The company expects margin to improve from Q3 as it takes pricing action in certain product categories and inventory adjustments will be done away with. It is also confident of growth momentum continuing in ensuing quarters with improving margin trajectory. 

Moreover, the company is also looking to increase in-house manufacturing to 75% in next 2-3 years from 60% currently which is expected to increase efficiencies and reduce supply-chain shocks that it encountered in the past, the brokerage highlighted.

“Considering the above reasons and recent outperformance in terms of revenue growth, we continue to maintain our positive stance on the stock and our Buy rating with target price of ₹289,” said Yes Securities.

Another domestic brokerage and research firm LKP Securities has also recommended Buy tag on V Guard shares with a target price of ₹275 apiece. 

“We believe the company's strong balance sheet, cash flows and reputed brand with management focus on evolving category mix and product mix, in-house manufacturing from current 60% to 75% to improve the product offering supply chain and gross margins, distribution enhancement in smaller towns and rural areas along with increase in non-south region to offer significant growth potential and positive outlook ahead,” LKP Securities' note stated.

Electrical appliances manufacturer V-Guard Industries Ltd reported an increase in consolidated net profit to ₹53 crore in the June quarter as compared to ₹25.5 crore in the year-ago quarter. The company's revenue from operations was up 80% to ₹1,018 crore during the period under review.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.